Dynamic Pricing Under Consumer Reference‐Price Effects

Arslan, Hasan; Kachani, Soulaymane

doi:10.1002/9780470400531.eorms0273

Cited by 23 publications

(13 citation statements)

References 31 publications

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“…It has been well-documented (see [104,105] for surveys) that individual preferences are reference dependent. In the dynamic pricing setting, this reference dependence can be particularly significant: "as customers revisit the firm, they develop price expectations, or reference prices, which become the benchmark against which current prices are compared."…”

Section: Reference Dependence and Loss Aversionmentioning

confidence: 99%

Modeling customer bounded rationality in operations management: A review and research opportunities

Ren¹,

Huang

2018

Computers & Operations Research

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Many studies in operations management started to explicitly model customer behavior. However, it is typically assumed that customers are fully rational decision-makers and maximize their utility perfectly. Recently, modeling customer bounded rationality has been gaining increasing attention and interest. This paper summarizes various approaches of modeling customer bounded rationality, surveys how they are applied to relevant operations management settings, and presents the new insights obtained. We also suggest future research opportunities in this important area.

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Section: Reference Dependence and Loss Aversionmentioning

confidence: 99%

Modeling customer bounded rationality in operations management: A review and research opportunities

Ren¹,

Huang

2018

Computers & Operations Research

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“…Nasiry and Popescu [31] developed a peak-end model in which reference price was a weighted average of the lowest and most recent prices. Mazumdar et al [30], Arslan and Kachani [3] provided a review of models with reference price. Liu et al [26] developed a dynamic pricing model of network goods for two firms with bounded rational consumers simultaneously considering the evolving consumers' preference to the network products.…”

Section: Shichen Zhang Jianxiong Zhang Jiang Shen and Wansheng Tangmentioning

confidence: 99%

A joint dynamic pricing and production model with asymmetric reference price effect

Zhang¹,

Zhang²,

Shen³

2019

Journal of Industrial &Amp; Management Optimization

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Reference price plays a significant role in influencing purchase decisions of customers. Due to loss aversion, the asymmetric reference price effect on market demand should be taken into account. This paper develops a joint dynamic pricing and production model with asymmetric reference price effect. In a finite planning horizon, the demand rate is time-varying and depends on price as well as reference price. The decision-making problem with the asymmetric reference price effect turns to be a nonsmooth optimal control problem, which cannot be solved by standard optimal control method. As a special case, we first obtain the joint optimal dynamic pricing and production strategy with symmetric reference price effect by solving the corresponding standard optimal control problem based on Maximum principle. For the case of asymmetric reference price effect, we propose a systematical method on basis of optimality principle to solve the nonsmooth optimal control problem, and obtain the joint strategy. Numerical examples are employed to illustrate the effectiveness of the proposed method. In addition, we assess the sensitivity analysis of system parameters to examine the impacts of asymmetric reference price on optimal pricing and production strategies and total profits.

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“…Some recent works explore how pricing strategies should account for the reference price effects, for example, see Kopalle et al [33]; Fibich et al [34,35]; Popescu and Wu [36]; Nasiry and Popescu [37]; Chen et al [38]; Hu et al [39]; Wang (2016) and the references therein. Arslan and Kachani [40] and Mazumdar et al [41] provide reviews of dynamic pricing model with reference price effects. However, there are few studies that consider the coordination of pricing and inventory control under reference price effects.…”

Section: Literature Reviewmentioning

confidence: 99%

Joint Pricing and Inventory Replenishment Decisions with Returns and Expediting under Reference Price Effects

Hou

2019

Mathematical Problems in Engineering

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This paper considers a single-item joint pricing and inventory replenishment problem under reference price effects in consecutive T periods. Demands in consecutive periods are sensitive to price and reference price with general demand distribution. At the end of each period, after the demand realization, a firm can return excess stocks to a supplier or place an expediting order to reduce the loss by shortage. Unfilled demands are fully backlogged. In order to maximize the total expected discounted profit with reference price effects the optimal pricing and inventory replenishment policies for regular order and the inventory adjustment decisions for returning/expediting are derived. The optimal replenishment policy for regular order is a base-stock policy, the optimal pricing policy is a base-stock-list-price policy, and the optimal policy for returning/expediting inventory adjustment follows a dual-threshold policy. Furthermore, the analysis of the operational impacts (from the perspective of adding returning/expediting and reference price effects, respectively) is researched. Numerical results also show that considering both returning/expediting and reference price effects is more profitable than considering only one of them.

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Dynamic Pricing Under Consumer Reference‐Price Effects

Cited by 23 publications

References 31 publications

Modeling customer bounded rationality in operations management: A review and research opportunities

Modeling customer bounded rationality in operations management: A review and research opportunities

A joint dynamic pricing and production model with asymmetric reference price effect

Joint Pricing and Inventory Replenishment Decisions with Returns and Expediting under Reference Price Effects

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